Question 1a
Marking Guide
(i) risks of material misstatement, materiality and further information requests | |
| generally up to 1½ marks for each risk identified and explained (to a maximum of 4 marks for identification only): | |
| zennor co | |
| – retranslation of zennor co’s financial statements using incorrect exchange rate | |
| – treatment of exchange gains and losses arising on retranslation | |
| – goodwill not measured correctly at initial recognition | |
| – goodwill not tested for impairment before the year end | |
| – time apportionment of zennor co’s income and expenses not correct | |
| – incomplete or inadequate disclosure | |
| – cancellation of intercompany balances | |
| – disclosure of related party transactions | |
| – completeness of inventory | |
| broadway co | |
| – derecognition of assets, liabilities and goodwill | |
| – time apportionment of profit up to date of disposal | |
| – calculation of profit on disposal | |
| – classification and presentation regarding the disposal | |
| – treatment in parent company financial statements | |
| – accrual for tax payable | |
| generally 1 mark for each of the following calculations/comments on materiality: | |
| – appropriate retranslation of zennor co figures into $ | |
| – calculate materiality of zennor co to the group | |
| – determine if zennor co is a significant component of the group | |
| – calculate materiality of goodwill arising on acquisition | |
| – calculate materiality of inventory in transit to the group | |
| maximum marks 12 | |
| (ii) 1 mark for each piece of additional information identified: | |
| – prior years’ financial statements and auditor’s reports | |
| – minutes of meetings where the acquisition was discussed | |
| – business background, e.g. from the company’s website or trade journals | |
| – copies of systems documentation from the internal audit team | |
| – confirmation from zennor co’s previous auditors of any matters that they wish to bring to our attention | |
| – projected financial statements for the year to 31 december 2013 | |
| – a copy of the due diligence report | |
| – copies of prior year tax computations | |
| maximum marks 4 | |